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us stock market, stock market today
Begin Part 2 of 3
THIS WEEK
Well, things are finally getting a bit interesting in the market. The downtrend is becoming a very massive selloff. Contrary indicators are starting to hit extreme levels. Not all of them are there yet, and those that have could get even more extreme. However, this past week added some more holdouts with the bears eclipsing bulls in the investment advisor category and NYSE volume eclipsing Nasdaq trade. Sentiment measures are mushy, and they are not something you necessarily time major buys on. They show the conditions are ripe for a turn; when that turn comes is the key. Get ready when you see them. Maybe Monday we will see what is needed to send them all to the extreme category with the VIX blasting toward 60, the VXN over 80, the put/call ratio closing well above 1.0. That would put us on alert. Then, if we see some of the upside stocks that are holding up relative to the market start to move, we can move in to play an upside reversal that could be fairly furious whether it is an interim bottom or the 'real' bottom.
What will a rally look like after this selling?
Stocks are mainly in the trash can as far as patterns after all of this selling. One of the keynotes of final selling binges in a downtrend is when the leaders are plowed under as well. That pretty much puts all stocks in the 'damaged goods' category. Thus, when the market bottoms after massive selling, there are not a lot of good patterns ready to breakout to jump into. The leaders that were just dragged down have the earnings and sales, but they need to rebuild; they just sold off hard and all of that overhead has to be weeded out.
What happened after the market bottomed in September 2001? Who were the leaders off the bottom? Stocks with 'go to' names for investors, stocks that have the potential to run up hard when a rally starts. In September these were tech stocks that led up off the low. They were the names investors looked to. After they rallied up the peak in January, then the small and mid-caps took over and started their climb as the large cap indexes started to falter. They had rebuilt their bases and were ready to take the lead. They did until just two months back when all of this current selling started.
This time around the small and mid-caps are still the best bets longer term, but their patterns have been predominantly shattered (not all, however; there are still several holding up quite well on the reports). They will not be ready for long term buys at a turn; they may provide short term rallies, but as in September, they may not lead or provide the best returns. They will rebuild and after the first rally, they will either take up the torch again as the first wave fades, or the whole thing melts back down.
As for the lead off the bottom, a lot of the go to stocks are still some of the techs. Why? They are holding up better than the other stocks currently in freefall. We have talked for over a week about the Nasdaq's relative strength. Stocks such as JNPR, BRCM, ORCL, EMC and EXTR are holding up very well. They are not necessarily the old first line techs (MSFT, DELL, INTC, GLW, SUNW); those are not showing the same strength. As we have said before, not all of the old leaders will return to lead. Some won't even return much on any big rally. These stocks that have been holding up, however, are already showing life the past two weeks, and they can provide some explosive upside moves during the initial rally while the other stocks we want to hold longer term set up for a breakout. Again, we could buy these other stocks, but on the move up off the bottom we want the stocks that can run the fastest for us. Then when they run out of gas we look for the leaders in sales and earnings that have formed good patterns and are ready to take the baton. If they breakout on strong volume we pass the torch to them for longer term.
This is typical action off of severe lows. The name stocks that still have a following are snapped up and lead higher. Eventually their overhead supply catches up with them and they start to struggle as some old holders sell them to recoup some losses. At that point money swings to those stocks with the leading earnings and sales, the specifics of which we teach in our seminars. Those are the stocks with the goods people want; mutual funds will want to hold them for the longer term. They have more staying power at that point if the move is for real.
Monday expectations.
Monday looks to head lower, and we want it to. It has moved past the slippery slope and into the vertical plunge. Though the market is way oversold we are still eyeing some downside plays. We never turn our head at day trips, and a big move down on the Dow and S&P is hard to pass up. We have to be ready to get in and then get out. Gaps lower are always a problem. A huge gap down does not give a lot of time to react; that is why a lot of funds closed their short positions today even though the selling continued. That is what we saw in the last 15 minutes that moved the market higher: shorts covering.
If the market starts to sell out of the gates a lot depends on where it opens as to what we are willing to do. A 100-point gap is not that bad if it is going down 500 points that session. If we see that, we will venture into some downside index plays and other weak stocks if the sentiment is still gloomy. Judging from the headlines Friday on the financial stations, it should be. We are then ready to close them out if the indexes hit potential support levels and start to bounce. At the same time we look at the stocks that have held up well during the selling as well as the indexes themselves for upside action. The SOX comes to mind.
Above all, we have to remember we are in a downtrend still, though that downtrend is getting very oversold. At some point there will be a strong rebound. Another plunge lower Monday and we could be at that point. Until the market proves or shows otherwise, however, a bounce is just a bounce in this current massive bear market and downtrend.
Support and Resistance
Nasdaq: Closed at 1319.15
Resistance: The May down trendline (1330). 1357.09 is the October 1998 bear market low. The 10 day MVA (1372.97) and the 18 day MVA (1399.15). Then 1418, the interim test after the September low. After that is 1500 and the second March down trendline at 1495. That is followed by the 50 day MVA (1501.29).
Support: The March down trendline (1317). The July intraday lows may have some stability (1315) for a bounce back up in the downtrend. Then the March down trendline bottom channel line at 1292. After that is roughly 1250.
S&P 500: Closed at 847.75
Resistance: It has fallen so far there is not much above it. The 855 and 850 from the October 1997 low and Q2 1997. Some resistance at 900. The 10 day MVA (908.93). The lowest bottom channel line of the March downtrend (912). The 18 day MVA (934.75). The predominant bottom channel line from the March downtrend at 940. The May down trendline (951). After that 972 is the March down trendline. The 50 day MVA at 995.16.
Support: 817, the Q1 1997 highs. After that, 750 to 760 with an intraday touch to 730.
Dow: Closed at 8019.26
Resistance: The September closing low is 8235.81 and the intraday low is 8062. 8400 to 8500 is some resistance. The 10 day MVA at 8599.79. The bottom of the channel of the March downtrend at 8750. The 18 day MVA at 8829.00 followed by 9000. The March down trendline at 9165. Then price resistance at 9250. Then the 50 day MVA (9324.06) and 9500.
Support: The October 1998 lows are at 7400 and 7467. After that is 7000, some 1997 lows and highs.
Economic Calendar
7-25-02
Initial jobless claims (8:30):
Durable goods orders, June (8:30): 0.5% expected, 0.9% prior.
Employment cost index, Q2 (8:30): 09.% expected, 0.8% prior.
New home sales, June (10:00): 960k expected, 1.028M prior.
Existing home sales, June (10:00): 5.73M expected, 5.75M prior.
7-26-02
Michigan sentiment, revised, July (9:45): 86.5 expected, 86.5 pior.
SEMINARS NOW ON CD!!
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and look for the link to the CD seminars. This is Jon Johnson's internet site for online seminars and the theories taught are the same that have delivered dozens and dozens of fantastic downside put plays during this downtrend. Hope you check it out.
SUBSCRIBER QUESTIONS
Q: Can you please explain the term "secular" bear market used in last night's Daily. Thanks.
A: Ah, secular bear markets, secular bull markets. The idea is that these are long term cycles in one direction of the other. Bear, long term downtrend. Bull, long term up trend. The bull market that ended in March 2000 was a secular bull market that covered two decades. Some say shorter as it was broken up by 1987, 1994, 1998, but secular trends can have countercyclical moves within them. Thus those short bear markets did not change the long term uptrend of the secular bull market.
With this bear market there are some saying that it could last for years and years. After such an excess to the upside that is not idle talk. There can be bull markets even in a longer term bear market just as there were those shorter bear markets in the longer term bull market.
THE PLAYS:
Monday has the potential for a wild session if the market continues to sell. We see upside opportunities on another early, 'challenging' sell off (as some were calling it) if it is intense enough. That will change some of the buy points if there is an upside rebound, though we do not anticipate the stocks we are looking at to sell much further down. That is why we are looking at them: they have already sold off and are holding up well compared to most of the market that is selling off still. There may be some adjustments on the fly and Alert subscribers will see those, but these turns can be great opportunities for gains ahead of a more sustained move.
NEW BONUS PLAYS:
Upside:
EXTR (Extreme Networks--$10.29; -0.21; optionable): Internet services
http://biz.yahoo.com/p/e/extr.html
STATUS: Testing the 50 day MVA. EXTR formed a mini ascending wedge below the 50 day MVA (10.06) in June and early July, and blasted off two weeks back. We held off at that point given the proximity to earnings, and now we are getting a good test of the 50 day on a pullback. Friday as the market sold on heavy, heavy volume, EXTR barely moved, showing a doji that tested the 50 day on the low and rebounded. EXTR has a lot of pop; it can really motor in a rally, and has 4 weeks up accumulation versus just 1 week of distribution since June.
Volume: 3.395M Avg Volume: 4.187M
BUY POINT: $10.51 Volume=6M Target=$14 Stop=$9.77
POSITION: EXJ LU - Dec. $7.50 call (80 delta) and/or Stock
http://www.investmenthouse.com/cs/extr.html
JNPR (Juniper Networks--$8.90; -0.03; optionable): Networking
http://biz.yahoo.com/p/j/jnpr.html
STATUS: Testing the 50 day MVA. JNPR has been moving well, rallying into earning, scoring some decent earnings and rallying further, and then breaking over the 50 day MVA (8.23). At the end of the week when the market sold hard, JNPR settled back toward the 50 day MVA. Friday it tested toward the 50 day and then rebounded for a slight loss. That is amazing strength in a plunging market. It has already done its selling as have many of the techs. They are just waiting for a rally to carry them higher.
Volume: 11.926M Avg Volume: 13.686M
BUY POINT: $9.04 Volume=17M Target=$12 Stop=$7.95
POSITION: JUX JU - Oct. $7.50 call (73 delta) OR JUX JA - Oct. $5 call (93 delta) and/or Stock
http://www.investmenthouse.com/cs/jnpr.html
SOX (Philly Semiconductor Index--$0364.08; -4.62; optionable): Semiconductor index
STATUS: Bounce. A fairly remarkable performance Friday given the overall market. Indeed, it showed a doji, holding well above the July lows (342.56) and selling off just a bit later in the session after semiconductors had held positive much of the session. Again there is that relative strength as compared to the overall market. It may sell down some more Monday in early selling, but we want to catch it on a move back up.
BUY POINT: $365 Target=$400 Stop=$360
POSITION: SOY HL - Aug. $360 call OR SOY HN - Aug. $370 call
http://www.investmenthouse.com/cs/$sox.html
Downside: These could be quicker plays if there is a big down session Monday. We get in, then if it gets close to the target, we take the gain.
ACDO (Accredo Health--$42.00; -0.99; optionable): Health services
http://biz.yahoo.com/p/a/acdo.html
STATUS: Put. ACDO has made us money in the past to the downside, and after a bounce up off the July lows (lows for the year), ACDO has turned over, showing a doji on higher volume Thursday. Friday it moved below the 10 day MVA (42.35). It has made a lower high and looks ready to fall further from here for a move to the July lows (37.31).
Volume: 730.8K Avg Volume: 795.863K
BUY POINT: $41.89 Volume=800K Target=$38 Stop=$42.85
POSITION: DZU TI - Aug. $45 put (-58 delta) OR DZU UI - Sept. $45 put (check Monday for deltas)
http://www.investmenthouse.com/cs/acdo.html
ESRX (Express Scripts--$44.60; -1.08; optionable): Mail order prescriptions
http://biz.yahoo.com/p/e/esrx.html
STATUS: Put. Another stock that has made us downside money during the downtrend. ESRX hit the 18 day MVA (47.10) Thursday and rolled over as well. Friday it fell a bit further on rising volume as it continues the steeper downtrend it started in June. It can make big moves in a day, and its recent low is 38.66; plenty of downside room for even an intraday move this week.
Volume: 1.414M Avg Volume: 2.297M
BUY POINT: $44.45 Volume=2.3M Target=$40.35 Stop=$46
POSITION: XTQ TJ - Aug. $50 put (-56 delta) OR XTQ UJ - Sept. $50 put (check deltal Monday)
http://www.investmenthouse.com/cs/esrx.html
CONTINUED BONUS PLAYS:
Upside:
IDPH (Idec Pharmeceuticals--$38.78; -1.95; optionable): Biotech drugs
Play Date: 07/18/2002
http://biz.yahoo.com/p/i/idph.html
STATUS: Testing the 50 day MVA. Biotechs continue to hold relative strength with the techs, and IDPH tested a bit lower in Friday's selling, but volume was very and it checked up at the simple 50 day MVA on the close. This light pullback in heavy market selling follows a nice move up from 30 in early July. It is testing that move and looks ready for the nod to make a move higher. Really like the way it looks, especially after Friday. Again, the initial target is just over 45, but if it moves with the volume it did the past two weeks it can reach 50.
Volume: 5.411M Avg Volume: 5.887M
BUY POINT: $41.25 Volume=7M Target=$45.25 Stop=$39.12
POSITION: IDK JG - Oct. $35 call (74 delta) and/or stock
http://www.investmenthouse.com/cs/idph.html
PDLI (Protein Design Labs--$11.94; -0.35; optionable): Biotechnology
Play Date: 07/15/2002
http://biz.yahoo.com/p/p/pdli.html
STATUS: Testing the 50 day MVA. Very much like IDPH, and we maybe like this one even better. PDLI is one of our post-split plays - - from way back. After a month-long flat consolidation below 10 (as the rest of the market sold lower and lower), PDLI shot up a week ago on some strong volume, putting in a week of good moves. It peaked out Wednesday, and sold back Thursday and Friday. It moved lower on falling volume, however, and held the 50 day MVA on the close (11.67). Friday it showed a lot of good things: a doji that tested the 18 day MVA on the low (11.12) and rallied back to close over the 50 day, and rising volume on the successful test. A nice rally and a picture perfect pullback. If the market is ready to rally after some selling Monday, PDLI will one of the stocks in a good position to move up for us.
Volume: 2.052M Avg Volume: 2.93M
BUY POINT: $12.45 Volume=3.5M Target=$15 (initial) Stop=$11.51
POSITION: PQI KB - Nov. $10 call (74 delta) and/or stock
http://www.investmenthouse.com/cs/pdli.html
Downside: AET and MHK hit the buy points Friday.
End Part 2 of 3
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us stock market
stock market today
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